Deconstructing the Poverty Line

Back in March, the Census Bureau announced that it is developing a (long-awaited) new way to measure U.S. poverty, which will supplement our current (and woefully outdated) federal yardstick. What’s so misleading about the current measure? Dollars & Sense has the answer. As Jeannette Wicks-Lim, a research professor at the Political Economy Research Institute at UMass-Amherst, writes:

The problem isn’t just that the poverty line is too low. Anyone can multiply the poverty line by two and use that to define poverty; that’s how eligibility for subsidy programs like reduced-price school lunches is determined. The official poverty line, however, actually represents a standard of living that deteriorates year after year.

The problem is that the Census Bureau adjusts the poverty line every year for overall inflation with the “Consumer Price Index for All Urban Consumers” (CPI-U). To calculate the CPI-U, a team of Census Bureau surveyors asks consumers about their purchases and determines the cost of a typical “basket” of goods and services purchased [such as food, housing, child care, health care, and transportation].

The change in the price tag of this basket from one year to the next is the overall inflation rate. The flaw in using the CPI-U to adjust the poverty line is that the budget of a low-income house hold is very different from that of a middle-income household.

Health care and child care take significantly bigger bites out of a lower-income family’s average budget than they do in the CPI-U’s everyperson “basket,” Wicks-Lim explains, and both of those costs have been rising far faster than inflation. (57 and 50 percent respectively between 1999 and 2009, while inflation rose just 29 percent).

Here’s a simple exercise to demonstrate what this means. The 1999 official poverty line was $16,895 for a family of four. Double this number is more reasonable poverty line of $33,790. The Census Bureau raised the poverty line by 29 percent between 1999 and 2009—the amount of inflation measured by the CPI-U. Twice the 2009 poverty line is therefore $43,590.

The income required to support the same standard of living in 2009 as in 1999, however, requires a bigger, 39 percent adjustment up to $46,970 to reflect the rapidly rising costs of child care and health care. In other words, in 2009, a low-income, four-person household would need to bring in another $3,400 over and above the inflation-adjusted, [doubled poverty line] to maintain the same standard of living in 2009 as in 1999.